China automakers’ third-quarter earnings preview: Exports support sales, while product mix and R&D drive profit divergence
Goldman Sachs has cut its earnings forecasts because of weaker domestic demand and higher tax costs. BYD and NIO benefit from new products and an improved product mix, while XPeng, Li Auto and Hesai face pressure on gross margins or R&D spending; sales growth may not translate into profit growth.
Original source：Goldman SachsFirst published on Unhidea：Original source date：
Key takeaway
Exports can cushion a decline in domestic sales, but whether companies can improve profitability depends on whether contributions from higher-priced models and overseas businesses can offset price cuts, costs and R&D investment.
Why is Goldman Sachs cutting earnings forecasts despite stronger exports?
The year-on-year decline in China’s retail sales of new energy vehicles widened from 3% in July 2026 and 10% in August to 16% in September. Goldman Sachs therefore lowered its assessment of domestic demand while raising its export forecast: it expects domestic passenger-vehicle retail sales to fall 20% and exports to rise 70% in 2026, with combined wholesale volume still falling by about 1%.
Exports support sales volumes, but profitability also faces policy-related costs. The report incorporates the impact of the battery consumption tax from 1 September 2026 and the reduction in electric-vehicle export tax rebates from 1 April 2027, lowering earnings forecasts and cutting the 12-month price targets for the ADR companies covered in this preview by 7%–12%. The latter measure takes effect next year and cannot be counted entirely as a third-quarter cost.
How are BYD and NIO turning their new-product advantages into improved profitability?
BYD’s third-quarter sales rose 19% year on year, a marked improvement from the 16% decline in the first half. Overseas sales rose 136%, while domestic sales still fell 13%, although the decline narrowed from 40% in the first half. Exports drove growth, while the domestic business recovered with support from new flash-charging models.
Goldman Sachs expects contributions from second-generation Blade Battery models and overseas operations to lift BYD’s third-quarter average selling price by 4% year on year and its overall gross margin by 2.2 percentage points to 19.8%; the sales recovery and improved product mix are expected to drive operating profit and net profit up 134% and 47%, respectively.
NIO’s third-quarter sales rose 26% year on year, with the ES8 and ES9 accounting for a greater share. Goldman Sachs expects its vehicle gross margin to rise 3.5 percentage points year on year and expenses to be controlled by integrating R&D and marketing resources across its three brands; however, the operating margin is still expected to be -0.9%, and non-GAAP net profit only about 54 million yuan, leaving improved profitability alongside an operating loss.
Why does profitability remain under pressure despite sales growth at XPeng and Li Auto?
XPeng’s third-quarter sales rose 2% year on year. Goldman Sachs expects the average selling price to rise 10%, but a lower share of service revenue to reduce the overall gross margin by 1.4 percentage points year on year to 18.8%; together with investment in general AI R&D, the non-GAAP net loss is expected to widen from 152 million yuan a year earlier to 752 million yuan. Higher vehicle prices did not offset pressure from the business mix and expenses.
Li Auto’s third-quarter sales rose 7% year on year, but its average selling price is expected to fall 6% year on year; compared with the second quarter, it is expected to rise about 6% as the lower-priced i6 accounts for a smaller share and higher-priced models increase. Goldman Sachs expects vehicle gross margin to recover 3.1 percentage points quarter on quarter to 12.5%, but still fall 3 percentage points year on year, with a non-GAAP net loss of about 691 million yuan, higher than 360 million yuan a year earlier. The quarter-on-quarter recovery has yet to restore profitability to last year’s level.
Why is Hesai’s profit falling despite 70% shipment growth?
Goldman Sachs expects Hesai’s third-quarter shipments to rise 70% year on year, but annual price reductions and changes in product mix to lower the blended average selling price by 24%, constrain revenue growth to 28%, and reduce gross margin by 2.9 percentage points year on year to 39.2%. Falling unit prices erode the revenue and gross profit generated by additional shipments.
Strategic new businesses such as robotics are adding to R&D expenses. Goldman Sachs expects operating profit to fall 43% year on year and non-GAAP net profit to decline 60%. The bank expects strategic new businesses to contribute revenue of 250 million yuan and 700 million yuan in 2026 and 2027, respectively, and to break even at the operating-profit level by 2027; investment comes before the contribution to profit.
Why did third-quarter improvement fail to prevent price-target cuts?
Goldman Sachs lowered its fourth-quarter sales forecasts for NIO and XPeng because of weaker domestic demand and cut its 2026–2028 sales forecasts for Li Auto by about 2%; it also lowered its expectations for Hesai’s advanced driver-assistance-related shipments because of weakness in the automotive market. The localized improvements from new products remain constrained by subsequent demand.
After the adjustments, the 12-month price targets for the ADRs of NIO, XPeng, Li Auto and Hesai are 5.6, 16, 13 and 28 US dollars, respectively; Goldman Sachs maintains buy ratings on NIO, XPeng and Hesai, and a neutral rating on Li Auto. The ratings remain in place while earnings and valuation expectations are revised downward.
